Accounting for Stock-Based Compensation

9 Months Ended

Sep. 30, 2022

Share-Based Payment Arrangement [Abstract]

Accounting for Stock-Based Compensation

3. Accounting for Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation, which requires that compensation related to all stock-based awards be recognized in the condensed consolidated financial statements. Stock-based compensation cost is valued at fair value at the date of grant, and the grant date fair value is recognized as expense over each award’s requisite service period with a corresponding increase to equity or liability based on the terms of each award and the appropriate accounting treatment under ASC 718.

During 2021, the Company added a new incentive plan (the “2021 Omnibus Incentive Plan”). The 2021 Omnibus Incentive Plan provides a means through which the Company may attract and retain key personnel and to provide a means whereby directors, officers, employees, consultants and advisors of the Company can acquire and maintain an equity interest in the Company, or be paid incentive compensation, including incentive compensation measured by reference to the value of common stock, thereby strengthening their commitment to the welfare of the Company and aligning their interests with those of the Company’s stockholders.

The aggregate number of shares of Common Stock that may be issued or used for reference purposes or with respect to which awards may be granted under the 2021 Omnibus Incentive Plan shall not exceed 2,500,000 shares and is subject to any increase or decrease, which shares may be either authorized and unissued Common Stock or Common Stock held in or acquired for the treasury of the Company or both.

During the nine month periods ended September 30, 2022, the Company granted 131,580 Restricted Stock Awards (RSAs) under the 2021 Omnibus Incentive Plan, compared to 27,540 similar awards under the same plan for the same periods in 2021. The Company recognized compensation expense related to its RSAs of $0.2 million and $0.5 million for the three and nine months ended September 30, 2022, compared to $0.1 and $0.1 million of compensation expense for the same periods ended September 30, 2021. As of September 30, 2022, the total unrecognized compensation cost related to RSAs not yet recognized in the condensed consolidated statement of operations totaled $0.3 million compared to $0.2 million on September 30, 2021.

During the nine months ended September 30, 2022, the Company granted 233,500 stock options under its 2015 Stock Incentive Plan (“2015 Plan”) compared to 545,000 similar awards under the 2015 Stock Incentive Plan and the 2021 Omnibus Incentive Plan in the same period in 2021.

During the nine months ended September 30, 2022, 96,000 stock options were exercised under the 2005 and 2015 Plans compared to 256,727 stock options that were exercised in the nine months ended September 30, 2021.

The following table summarizes the activities for the Company’s stock options for the nine months ended September 30, 2022:

	September 30, 2022
	Number of Options			Weighted-Average Exercise Price
Outstanding at beginning of year		617,273		$	6.47
Granted		233,500			3.71
Exercised		(96,000	)		0.68
Forfeited		(150,834	)		7.88
Expired		(22,666	)		9.26
Outstanding at September 30, 2022		581,273		$	6.23
Options exercisable at September 30, 2022		278,271		$	4.25

The Company recognized compensation benefit expense related to its stock option awards of $0.1 million and compensation expense of $0.6 million, for the three and nine month periods ended September 30, 2022, compared to compensation benefit expense of $0.1 million and compensation expense of $0.9 million for the three and nine month periods ended September 30, 2021. As of September 30, 2022, the total unrecognized compensation cost related to non-vested options not yet recognized in the condensed consolidated statement of operations totaled $0.7 million compared to $2.3 million in the same period ending 2021.

Valuation Assumptions

The fair values of employee option awards were estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions: 

	For Three Months Ended September 30, 2022		For Three Months Ended September 30, 2021		For Nine Months Ended September 30, 2022		For Nine Months Ended September 30, 2021
Weighted average grant date fair value	$	3.58	$	–	$	3.41	$	8.99
Weighted average assumptions used:
Expected dividend yield		0.0%		–		0.0%		0.0%
Risk-free interest rate		2.81%		–		1.43%		0.80%
Expected volatility		132.2%		–		132.7%		81.81%
Expected life (in years)		6.9		–		6.7		5.0

Expected volatility is based on historical volatility and in part on implied volatility. The expected term considers the contractual term of the option as well as historical exercise and forfeiture behavior. The risk-free interest rate is based on the rates in effect on the grant date for U.S. Treasury instruments with maturities matching the relevant expected term of the award. Options granted to non-employees are valued using the fair market value on each measurement date of the option.